Interiors of the foyer looking at the doors to the chambers of the House of Commons at Parliament Hill in Ottawa.Fred Lum/The Globe and Mail
As an owner of a small or medium-sized business (SMB), you cannot afford to overlook the potential for creative financing through government programs. It can be time consuming and paper intensive, but it also can provide those additional funds you need to gain a competitive advantage or get moving on a new market opportunity.
A source for assistance and incentives
Past federal and provincial governments focused on devising new programs primarily to develop specific sectors of the economy. But things have changed. For several years now, various levels of government have been promoting assistance and incentive programs. New programs continue to be introduced as both governments and their social, economic and political priorities change. A top priority of all governments, and government funding, is job creation and training.
The most significant change in this source of financing stems from budgetary problems and continuing changes in philosophy: government assistance has shifted from simply handing over cash to playing an advisory role. This approach is most evident in human resources and international trade.
It is important to distinguish between "assistance" and "incentive." A government will often provide an incentive in a variety of forms for a business to do a project. It might provide a non-repayable contribution because the project could not otherwise proceed. It is up to the business to convince the bureaucracy that, while worthwhile, the project is risky or may not achieve the threshold return on investment. Of course, the project cannot be started until approval has been received from the granting authority.
Will your project qualify?
Any project expected to create jobs can qualify for assistance. Specific business activities that may be received favourably include:
• Industrial research and product development.
• Financing the business.
• Restructuring specific industries.
• Marketing products, particularly for exports.
• Exploitation of technology.
• Training and upgrading the work force.
• Industrial engineering opportunities.
In addition to "cash funding" programs, governments are continually changing the tax structure to try to redirect the economy. Governments realize that a healthy business sector can soften many of the tough social problems they have to face.
But the amount of available cash is limited, so businesses or individuals hoping to partake of any of the programs must be well organized and methodical in their approach.
Here are some general tips that can help you avoid the common pitfalls:
Read the guidelines carefully. If you just scan the printed material, you may leap to the conclusion that your business does not qualify. Keep in mind that most programs are much more flexible than you might infer.
Understand the criteria for the program. Ensure the application includes one or more of the factors outlined above as a key issue for the government. This includes the appropriate return on investment (ROI) or payback to government and society in general.
Plan the timing of your application. Approach the relevant government agency long before you make any financial commitments elsewhere. If you must proceed with the project before you receive approval of government funding, request a waiver in writing from the agency.
Tailor your proposal appropriately. Your presentation must emphasize your ability to carry out the project successfully and the benefits it will bring locally and/or nationally, including:
• Employment.
• Increase in exports / abatement of imports.
• Use of domestic manufactured goods and resources.
• Spin-offs to other businesses and industries.
Talk to the right people. Always speak to the appropriate officials to explore your eligibility. If you can communicate the important financial and social benefits of funding your project, the program administrator may feel compelled to exercise some discretion to find a way to establish eligibility.
Preparing a business plan for government funding
A well-prepared business plan is the cornerstone of every financing program, whether in the private or public sector. But government priorities and accountability create unique requirements that need to be addressed in order to ensure the timely (and successful) processing of an application.
In addition to the information normally included in a traditional business plan, the following areas should also be considered in preparing a plan to support an application for government funding.
History
• A significant chronological outline of the evolution of the business.
• Details of any previous government funding received.
Location
• A detailed outline of the proposed site.
• Advantages and disadvantages of operating from this site, with specific cost savings and premiums.
• Reasons for moving from an existing site.
• Any other feasible alternative sites.
• Availability of the following infrastructure in the proposed community: Housing, schools, hospitals and medical facilities, recreation facilities, sewer and water capacity, fire and police protection, business support services, retail establishments.
• Outline any of your own plans to expand or improve the foregoing infrastructure.
Financial
Develop forecasts for any stepped increases in areas such as:
• Employment
• Sales, distinguishing export and domestic.
• Capital expenditures.
• Net income and net cash flow.
Employment
• Provide a breakdown of proposed employment levels, including management.
• Outline the jobs by classification, duties and wage rates.
• Indicate the location and sourcing of personnel to fill the new positions.
• Forecast the number of shifts and equivalent person-years of employment for the next three years.
• Identify availability of required skills.
• Outline any training programs to be initiated.
• Determine whether employment levels will drop at other plants as a result of expansion at this project.
Marketing
• Analyze forecast sales by units of output and by nature and location of markets.
• Outline basis of forecast volume levels.
• Summarize major competitors, and consider impact of new project on competitors' businesses.
Production
• Describe the types, quality and sources of raw materials.
Capital expenditures
• Justify any purchasing of equipment from foreign instead of domestic suppliers.
Special to the Globe and Mail
Excerpts from The Financing Toolkit for Small & Medium Businesses by Gary A. Fitchett, CA, provided by the Canadian Institute of Chartered Accountants. For more information go to www.knotia.ca/store, or www.cica.ca/financing.